Until the US military began shipping armaments to Ukraine, most Americans didn’t know about the crisis in our defense supply chain. Then came news the Pentagon would be slow to restock its supply of missiles and shells because America at peace can’t produce weapons as quickly as a nation at war.
I suggest this is a hidden crisis, but the challenge is evident to those tasked with defending America. They know the supply chain is stressed, and they’re working on solutions.
“These are simple but extremely difficult problems,” said Bradley Martin, director of the RAND National Security Supply Chain Institute. “That’s why we say things like, ‘If we don’t fix this, we’re going to lose the next war.’”
The shrinking of the defense sector can be traced to the end of the Cold War when budget and competitive pressures drove industry consolidation. Since the 1990s, the number of aerospace and defense prime contractors has dropped from 51 to five. The same pattern goes for weapon systems. “Today, 90% of missiles come from three sources,” the Pentagon said.
Fewer prime contractors mean fewer opportunities for subcontractors, right down to the smallest firms making the tiniest parts.
Reviving military muscle faces obstacles. First off, defense work in the high-tech era is expensive. Robert Weisheit, whose suburban Chicago company makes parts for the military, said starting a machine shop requires $1 million or $1.5 million and 10 employees. Many investors aren’t interested in defense contracting; they think they can get higher returns in other types of manufacturing.
Maybe the biggest obstacle to recruiting new contractors is the military bureaucracy, including paperwork demands and the cost of complying with operating regulations on issues like cybersecurity. Even the language of defense contracting seems unwelcoming to outsiders. Mysterious acronyms abound: DIB, MEP, NIST, AFRL, etc.
History says American industrial might ramps up to meet every national security challenge. But China isn’t waiting for a crisis; it’s bulking up now to assert itself in the Pacific. Meanwhile, the United States spent the past two decades focused on defeating terrorism, so attention shifted. Twin challenges present themselves: The Defense Department needs to replace all the armaments shipped to Ukraine. At the same time, tensions with China over Taiwan call for a further US military buildup as a deterrent.
There is some good news. The Defense Department recognizes the need to rebuild the depleted ranks of small business contractors. But it won’t be easy.
A significant ecosystem of organizations—some government funded, some private—has risen up to help identify and encourage small- and medium-sized manufacturers to become defense contractors. Recently, the Pentagon released a small business strategy and boosted an assistance program in which 96 organizations, known as Apex Accelerators, teach small businesses across the country how to work with the federal government on defense contracts.
Small businesses make up 73% of the defense industrial base and last year were awarded over 25% of all Defense Department contracts, doing everything from manufacturing parts to building software platforms. It will take time to make up for lost ground. Many companies that could join the defense industrial base need to be actively recruited because they either don’t realize the opportunities exist or are intimidated by the process.
Part of the answer is to improve productivity through automation. “You could argue we need to bring on 50,000 small manufacturers in the defense industrial base. That’s not a manual process,” said Michael Morford, co-founder of Sustainment, a software company that helps manufacturers connect with the Defense Department. Manufacturers need to figure out how to use emerging technologies to accomplish time-consuming and individualized tasks.
Aina Vilumsons, executive director, Wisconsin Procurement Institute, is effectively a talent scout for defense contractors and subcontractors, using site visits to determine of manufacturers are good candidates for the job. She said companies are in various states of preparedness to contribute to a capacity surge. Many need coaching to position themselves to compete for contracts.
“The successful contractors right now are automating. They’ve got their cybersecurity pieces in place. They’ve got their compliance in place,” she said. “But I also see businesses that will sit in their office and start bidding on stuff and complaining they never win. Well, that’s not how it works.”
More optimistically, Vilumsons said the government is actively supporting the defense ecosystem. For example, the last Society of American Military Engineers small business conference had more than 6,000 people attend, including 300 representatives from the Corps of Engineers—an unprecedented number.
As Morford put it, “There are companies that are interested and don’t know how to break through. And there are companies that don’t realize they have the capabilities. We’ve got to find them.”
This article recaps panels and conversations that took place at the June 13 “Growing the U.S. Defense Industrial Base” supply chain summit at MxD in Chicago, and first appeared in Issue 37 of ChainMail.